ANALYSTS UPBEAT ON AIRASIA

Stable demand growth and resilient load factor to balance out fluctuating fuel prices

ANALYSTS are sanguine about AirAsia Group Bhd’s earnings prospects based on stable demand growth and resilient load factor, despite volatile fuel prices.

MIDF Research said the headwind from oil prices would be moderated by AirAsia Group’s hedging policies, noting that the low-cost carrier would continue to enhance its cost structure while rationalising revenue and cost via digitalisation efforts.

“Although the departure levy for international outbound passengers will come into effect in the middle of next year, sensitivity towards the increase in passenger charges has been low in the past,” it said.

The research house said the possibility of higher fares would be offset by increased travel demand, translating to better ticket sales.

“We have maintained a ‘buy’ call with an adjusted target price of RM3.48 per AirAsia Group share from RM3.62 previously.”

MIDF Research said Brent crude oil price had dropped 24 per cent in the first two months of the fourth quarter, hovering around US$60 to US$65 (RM248 to RM269) per barrel, compared with the 7.4 per cent rise in the third quarter.

At press time, Brent traded at US$62.94 per barrel, while West Texas Intermediate crude stood at US$53.99 per barrel.

“We believe that jet fuel prices will follow suit and AirAsia Group will be able to reap benefits by hedging more in the near future,” said MIDF Research.

It said AirAsia Group’s yields could see further improvement, driven by the airline’s digitalisation strategy and capacity expansion via fuel-saving aircraft.

“We are revising our earnings forecast downwards for financial years 2019 and 2020 by nine and 3.6 per cent, respectively, to take into account our higher assumptions of operating expenses, in terms of operating lease expenses.”

Public Investment Bank expects AirAsia Group’s earnings to improve on higher fare revision in the fourth quarter. It has maintained its “outperform” call on the airline’s shares with an unchanged target price of RM4.14, pegged to 13 times fiscal year 2019 earnings per share.

It said the management targeted to achieve a passenger load of 85 per cent this year, with upward fare revision in accordance to higher fuel and competition in the fourth quarter.

AirAsia Group’s third-quarter net profit catapulted 81.24 per cent to RM915.88 million from RM505.33 million in the same period a year ago.

This was fuelled by foreign exchange gain and net gain from the disposal of Expedia, as well as deferred tax income.

Third-quarter revenue rose 6.53 per cent to RM2.61 billion.

For the first nine months, AirAsia Group’s net profit surged to RM2.4 billion from RM1.27 billion in the previous corresponding period, while revenue jumped 10.35 per cent to RM7.78 billion from RM7.05 billion.